EMPLOYMENT AGREEMENT



         THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is made and entered into

on the 1st day of October, 2003, (the "Restatement Effective Date"), by and

between PAYLESS SHOESOURCE, INC., a Delaware corporation ("Payless"), and Steven

J. Douglass ("Executive").



         In consideration of mutual promises and agreements set forth in this

Employment Agreement, Payless and Executive agree as follows:



1.       (a)      Payless agrees to employ Executive, and Executive agrees to

render personal services to Payless, as Chairman of the Board of Directors (the

"Board") and Chief Executive Officer of Payless ShoeSource, Inc., for the period

commencing on the Restatement Effective Date of this Employment Agreement

through May 31, 2007 (the "Initial Term"). Commencing on June 1, 2006, the

Initial Term will be automatically extended each day by one day, until the

earlier of (i) one year following the date on which either party delivers to the

other in accordance with Paragraph 11 written notice of non-renewal (a

"Non-Renewal Notice"), or (ii) the date Executive attains age 65. The Initial

Term as so extended is referred to in this Agreement as the "Contract Term."

Notwithstanding the foregoing, following Executive's delivery of a Non-Renewal

Notice, Payless may shorten the Contract Term in its discretion, provided that

Payless shall pay Executive the amounts he would have received (as and when they

would have become due) pursuant to Paragraphs 1(b), 1(c) and 1(d) had Executive

remained employed through the date which is one year from the date on which

Executive delivered the Non-Renewal Notice.



         (b)      Payless agrees to pay Executive basic compensation for such

services during the Contract Term at the annual rate of $905,000.00, payable in

equal bi-weekly installments, and in accordance with Paragraph 5, which annual

rate will be subject to an annual review during Payless' regularly scheduled

review time.



         (c)      If Executive is eligible to participate in one of Payless'

bonus plans (the "Incentive Plan"), then Executive shall be entitled to such

Awards, if any, which may be payable under the Incentive Plan, determined in

accordance with and subject to all of the terms and provisions of the Incentive

Plan. If the Executive participates in the Payless ShoeSource, Inc. Executive

Incentive Compensation Plan (the "EICP") for the long-term performance periods

ending in fiscal years 2003 or 2004, the Executive hereby consents to the

long-term award, if any, being calculated using the following formula: long-term

performance period ending in 2003, 1/3 of the bonus under the EICP plus 2/3

bonus under the Incentive Compensation Plan (the "ICP"); and for the long-term

performance period ending in 2004, 100 percent of the bonus will be determined

under the ICP. Such awards are subject to the terms and provisions of the EICP

and ICP respectively.



         (d)      Payless shall reimburse Executive for all items of normal

expense incurred by Executive as an employee of Payless in accordance with

Payless' reimbursement policies in effect from time to time.







         (e)      Payless has adopted certain employee benefit plans ("Benefit

Plans") and has established certain arrangements concerning executive

perquisites which may, from time to time, confer rights and benefits on the

Executive in accordance with their terms, and Payless may, in the future, adopt

additional Benefit Plans and establish additional arrangements concerning

executive perquisites, and may in the future amend, modify or terminate any of

the aforesaid Benefit Plans and arrangements, all in accordance with their terms

and in accordance with applicable law. Executive shall be entitled to whatever

rights and benefits may be conferred on Executive, from time to time in

accordance with the terms of such Benefit Plans and arrangements, as they may be

amended from time to time, independent of this Agreement except as required by

Paragraph 14 of this Agreement. All references to payment dates or vesting dates

in this Paragraph 1 or in such Benefit Plans and arrangements, shall require

that Executive be employed by Payless on such date to receive such payment or be

vested in such benefit.



         (f)      Executive will be eligible for future grants of restricted

stock and stock options as may be made under the terms of the 1996 Stock

Incentive Plan or any successor plan ("SIP") in accordance with the levels

established by the Compensation Committee of the Board of Directors.



         (g)      Payless will (to the extent Payless has not already done so

prior to the Restatement Effective Date):



                  (i)      grant Executive 120,000 options on shares of common

         stock under the SIP on May 25, 2001, such options to vest as follows:







-----------------------------------------------------

NUMBER OF SHARES                         VESTING DATE

-----------------------------------------------------

                                      

     15,000                              May 25, 2002

-----------------------------------------------------

     15,000                              May 25, 2003

-----------------------------------------------------

     20,000                              May 25, 2004

-----------------------------------------------------

     20,000                              May 25, 2005

-----------------------------------------------------

     25,000                              May 25, 2006

-----------------------------------------------------

     25,000                              May 25, 2007

-----------------------------------------------------





         and



                  (ii)     on November 18, 2003, grant Executive stock

         appreciation rights and performance units, as follows:



                           (1)      stock appreciation rights on 420,000 shares

                  of the Payless common stock, payable in cash, which shall vest

                  in equal installments beginning on May 23, 2004, and

                  continuing annually thereafter through the anniversary of such

                  date on May 23, 2007, as set forth in the Stock Appreciation

                  Unit Agreement attached as "Exhibit 1" and incorporated herein

                  by reference; and



                           (2)      140,000 performance units, payable in cash,

                  which shall vest in equal installments beginning on May 23,

                  2004, and continuing annually thereafter



                                     - 2 -





                  through the anniversary of such date on May 23, 2007, as set

                  forth in the Performance Unit Agreement attached as "Exhibit

                  2" and incorporated herein by reference; and



                           (3)      Such grants shall not count towards, or be

                  included in, any calculation made under the Payless

                  ShoeSource, Inc. Supplemental Retirement Plan or any successor

                  plan (the "SRP").



                  (iii)    amend the SRP (or otherwise cause Executive to be

         paid the equivalent benefit) to provide for the Executive (1) immediate

         benefit eligibility (prior to age 55) upon a Change of Control (as such

         term is defined in the Executive's Amended and Restated Change of

         Control Agreement dated October 1, 2003, as amended from time to time

         (the "Change of Control Agreement")), termination of Executive's

         employment by Payless without Cause or by Executive with Good Reason

         and vesting of benefits in the event of Executive's death; (2) in the

         event of Executive's disability prior to age 55, immediate eligibility

         for benefits to be integrated with, and funded pursuant to, Payless'

         disability plans; (3) that, notwithstanding Section 3.6(c) of the SRP,

         SRP benefits are a binding irrevocable contractual obligation of

         Payless payable without regard to Payless' level of profits; (4) that,

         notwithstanding Section 1.7 of the SRP, the definition of "Annual

         Retirement Benefit Offset" shall not include any reduction for benefits

         under any defined contribution plan maintained by Payless; (5) that,

         notwithstanding Section 1.13 of the SRP, the definition of

         "Compensation" shall include only amounts paid to (or earned by)

         Executive pursuant to Paragraphs 1(b) and 1(c) of this Agreement and

         for purposes of determining "Compensation" and "Annual Compensation",

         the "severance payment" (as defined below) shall be included as though

         paid ratably over the period provided under Paragraph 5(e)(ii); and (6)

         that, notwithstanding Section 3.4 of the SRP, on the fifth annual

         anniversary of the commencement of payments to Executive under the SRP

         or upon any termination without Cause after a Change of Control,

         payment of the remaining obligations of Payless to Executive under the

         SRP shall be settled by a payment to Executive of a single lump sum in

         cash equal to the present value (determined under the Pension Benefit

         Guaranty Corporation interest rate plus twenty-five basis points,

         mortality and other assumptions for immediate annuities, as then in

         effect and set forth in Appendix C to 20 CFR Part 4022; for purposes of

         clause (5) above, "severance payment" means an amount equal to three

         times the sum of (x) the "Annual Base Salary" (as defined below in

         Paragraph 5(e)(ii)(1) and (y) the "bonus amount" as hereafter defined;

         "bonus amount" means the Annual Base Salary multiplied by a fraction,

         the numerator of which is the bonuses paid (or earned) by Executive

         pursuant to Paragraph 1(c) for the three consecutive years completed in

         the five fiscal years of the Company (ending prior to Executive's date

         of termination) that produces the highest sum and the denominator of

         which is the aggregate of the base salaries earned during such years;

         and



                  (iv)     amend the Payless ShoeSource, Inc. Executive

         Post-Retirement Life Medical Insurance Program ("Retiree Medical Plan")

         (or otherwise cause Executive to receive the equivalent after-tax

         benefit) to provide the Executive and his spouse with lifetime retiree

         medical insurance coverage at Payless' cost (1) upon the Executive's

         termination for any reason without Cause after age 55, and (2) prior to

         the Executive



                                     - 3 -





         reaching age 55, in the event of Executive's termination following a

         Change of Control, termination of Executive's employment by Payless

         without Cause or by Executive with Good Reason, or the Executive

         becoming disabled (as defined by the Retiree Medical Plan); and



                  (v)      amend the EICP to increase the maximum (as defined in

         Section 4.c.i. of the EICP) for each of the "Annual EPS Factor" and

         "Annual RONA Factor" to 56.25%.



2.       (a)      At all times during the Contract Term, Executive will:



                  (i)      faithfully and diligently perform Executive's duties

         in conformity with the directions of Payless and serve Payless to the

         best of Executive's ability; and



                  (ii)     devote Executive's undivided time and attention to

         the business of Payless, subject to reasonable vacations in accordance

         with Payless' vacation policy as it applies from time to time, to such

         extent as may be reasonably necessary for the proper performance of the

         personal services to be rendered by Executive under this Agreement; and



                  (iii)    maintain Executive's residence in the Topeka, Kansas

         metropolitan area or the environs thereof within reasonable access to

         the business activities of Payless therein for the Contract Term.

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